Two Chicago tech veterans this week finished raising $28 million for a new venture fund focused on early-stage startups and already have made more than a dozen investments totaling $4.5 million.
Former Redbox executive Mark Achler and TechStars Chicago managing director Troy Henikoff are banking on their access to TechStars' global pool of startups and decades of operating experience in an increasingly competitive environment for deals.
Their fund, named MATH Venture Partners after their initials, took about 10 months to seed from the original regulatory filing until close.
TechStars Chicago is a three-month boot camp for startups based out of the 1871 co-working space in the Merchandise Mart. It is also part of a broader global network of boot camps in cities from Boulder, Colo., (where it was founded) to Berlin.
"Running TechStars takes time but it ensures benefits to MATH Venture Partners," Henikoff said. "We get to know these companies so well."
It is quite common for successful entrepreneurs such as Henikoff, who sold SurePayroll for $115 million in 2011, to transition into venture capital.
Chicago also has witnessed two jumps in the other direction with prominent venture capitalists Eddie Lou and Paul Lee returning to the ranks of entrepreneurs, a signal that executives with track records can have their choice of funders and negotiate more favorable terms.
Henikoff said there is no shortage of deal flow. Among MATH's investments thus far: ThinkCerca, which uses technology to improve students' reading and writing; health analytics company Apervita; and mobile security firm NowSecure.
Achler said he and Henikoff's investment thesis is the No. 1 reason startups fail is because of a lack of skill at sales.
"They build a product and they don't know how to sell it," Achler said. "We look for companies who in their core DNA understand sales, first and foremost. ... Secondly, it's really, really hard to teach a customer new behavior. We're looking for better mousetraps, not new inventions."
This is Achler's second venture firm. In 1997, during the run-up of the tech bubble, he co-founded Kettle Partners, which invested in SurePayroll and made its last new investment in 2001. Another of its portfolio companies, MusicNow, was acquired by AOL in 2005.
Although $28 million does not seem like a large number, the continued emergence of new venture funds is critical to Chicago building a tech ecosystem to rival those of smaller cities, such as Austin, Texas.
Most venture funds have a narrow investment window. Achler and Henikoff said they plan to make all of their picks in the next three years. They'll hold some money back for what's known as follow-on capital, in which they make bigger bets on previous picks performing well.
If a venture capital firm doesn't find a big winner or one or two solid performers in that first crop, it becomes incredibly difficult for them to raise additional capital and continue placing bets. When that happens to a succession of area firms, new companies have to make up the difference or the industry contracts.